Retailers in focus after sales figures

Merrill Lynch changes view on trio of insurance firms

By

SarahTurner

LONDON (MarketWatch) -- Retailers and utility stocks nabbed the London spotlight Tuesday as investors eyed figures from Marks & Spencer and stronger-than-expected retail-sales data from the British Retail Consortium, while bid speculation colored the utility sector.

Department-store operator Marks & Spencer (MKS) lost 1.9% after it posted an increase in comparable sales but said it remained cautious about the future.

Comparable sales in the United Kingdom rose 2.9% in the 13 weeks to Dec. 31, after food sales rose 5.1% and general merchandise sales increased 0.8%. Total sales rose 4.8%.

Noting that the company's third-quarter sales came in higher than forecast, Morgan Stanley -- which handles Marks & Spencer's business -- reiterated an overweight rating.

David Buik at Cantor Index took a less positive view.

"Marks & Spencer figures were good, but this is a momentum stock with every granny, grandpa, uncle, aunt, child willing this company to succeed," he noted, pointing out that other retailers such as Tesco reported sales growth of more than 5% for the same period.

"Scottish & Southern Energy (is) trading better on news that Swedish electricity company, Vattenfall, may be considering a bid approach..." noted Dean Castles, a trader at CMC Markets, who added that the news has buoyed other stocks in the sector.

More broadly, the FTSE 100 index (UKX) eased 0.8% at 5,688, with insurance stocks also in focus after broker action. European markets were also lower. See Europe Markets.

"They (stock markets) can't go up forever so for people to sit back, take stock and take a bit of profit, you can't blame them. The property sector felt the venom of the market yesterday, I suspect today we'll see people in oil and mining take some profits," said Buik.

Mining giants Rio Tinto (RIO) and BHP Billiton (BLT) and oil major Royal Dutch Shell (RDSA)(RDSB) were all lower.

Meanwhile, Merrill Lynch changed its ratings on three U.K. insurers, upgrading Aviva (AV)to buy from neutral but downgrading Royal & Sun Alliance (RSA) to sell from neutral and Prudential plc (PRU) to neutral from buy.

Merrill noted that Aviva underperformed the European insurance sector by 15% and has the strongest cash flow out of the U.K. life companies, but Royal & Sun should see profit-taking after a 62% share price rise in 2005. Prudential's valuation is "fairer" after a 10% rise over the past month, particularly in light of what the brokerage called the company's relatively high risk profile.

All three insurers declined, with Royal & Sun giving up 2.4%, Prudential sinking 2.2% and Aviva shedding 1.2%.

Also, smaller insurer Amlin (AML) eased 0.1% after it said it expects 2005 pretax profit to be ahead of market forecasts despite a 2.4% fall in gross written premiums to 810 million pounds.

On the upside, investors welcomed earnings news from materials company Cookson (CKSN), pushing the shares 1.7% higher. It sees overall performance for 2005 ahead of its previous expectations, thanks to a strong fourth-quarter performance from its ceramics and electronics division.

Also, support-services company Alfred McAlpine (MCA) added 1.9% after saying its financial performance for 2005 is in line with expectations.

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